Most Banks Pass Stress Test, But Four Fail

March 14, 2012 by staff 

Most Banks Pass Stress Test, But Four Fail, All but four of 19 major U.S. banks got a green light Tuesday from the Federal Reserve to boost their dividends and take other steps that will make their stocks more attractive to investors. The Fed declared them strong enough to survive a downturn worse than the Great Recession.

The Fed’s findings signaled its confidence that the financial system, which nearly collapsed 3½ years ago, is healthy again.

J.P. Morgan Chase, Wells Fargo and other large bank holding companies that passed the Fed’s so-called stress tests raised their dividends and announced plans to buy more of their stock. The news ignited a late-day rally on Wall Street. The Dow Jones industrial average shot up 218 points to its highest close since the end of 2007.

“It’s clearly good news — the U.S. banking system can now withstand a quite severe recession without falling over,” said Douglas Elliott, a fellow at the Brookings Institution, a non-partisan policy think tank.

One notable exception was Citigroup, the nation’s third-largest bank. It was among the companies the Fed said lacked enough capital to withstand another severe economic and financial crisis. Its stock price fell 3 percent in after-hours trading. The Fed announced the results after markets had closed.

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